What Is the Best Way to Predict Forex Market Movement?

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Quite naturally the best way to predict Forex market movement is the way that works best for you. It may sound simplistic at first but the word “best” can be pretty subjective. What is best for one trader may certainly not be best for another trader. Also another point to clarify is that you don’t necessarily need to predict Forex market movement in order to trade successfully you simply need to anticipate Forex market movement. They’re in a number of ways to do this and they are all based upon Forex market research.

By using Forex market research were able to take a look at past Forex market movement to try to find repeatable price patterns. These repeatable price patterns can help us trade the Forex market in the future. Forex analysis helps us find the price patterns which may have the highest probability of success in the future. An example of a Forex price pattern could be as simple as three days of consecutively higher closes or three days of consecutively lower closes. Our research may show that we should buy after three days of consecutively higher closes and sell after three days of consecutively lower closes.

In our example of price patterns above we were using a form of technical analysis. Technical analysis analyzes the market by looking at price, time, and sometimes volume. Technical analysis is also very popular with many traders today because of the enhanced computational power of modern-day personal computers as well as the availability of real-time Forex data to analyze.

So why analyze the Forex market? Quite obviously, in order to make a profit. We would like to be able to anticipate a particular currency pair’s price moves. If we anticipate that the price will move higher than we would want to “buy” the market in order to make a profit. Conversely if we anticipate that the price of the currency pair will move lower we want to “sell” the market. Our analysis will allow us to form a set of rules. The set of rules could be referred to as a Forex trading system. Forex trading systems are very handy because they allow us to have a consistent and disciplined approach to trading in the markets. Most importantly they eliminate guesswork and helpless to control risk.

Today’s Forex traders use Forex trading systems extensively to help them trade. Forex trading systems take Forex market data in one end and deliver a Forex trading signal at the other end. The Forex trading signal is a specific set of instructions of what and when to trade.

One of the nicest things about the Forex market is that it is inherently volatile. This coupled with a high leverage available in Forex trading accounts makes Forex trading an ideal vehicle for both short, intermediate, as well as long-term traders. With a number of currency pairs to choose from the movements in the Forex market provide traders with opportunities to profit each and every day. Since there are so many excellent trading opportunities in the various currency pairs Forex traders should feel less anxious about “missing out” on any trading opportunities.

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Breakout Forex Trading

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One of the most popular techniques for profitable Forex trading is known as “breakout Forex trading”. Breakout Forex trading has grown in popularity because it has proven to be an extremely effective method to profitably trade Forex.

Breakout Forex trading gets its name because the trades are triggered when the price of a currency pair “breaks out” of a particular “trading range”. I know that may sound a bit confusing at first, but let me explain further. Let’s say that we are standing in a room. This room has both a floor and a ceiling. If you were to take a sledgehammer and start hitting the floor with it, you would eventually make a hole through which you could crawl down into the basement. Conversely if you did the same thing to the ceiling of the room you would eventually make a hole through which you could crawl up to the attic. By knocking out the floor or ceiling you effectively “break out” of the room.

The above concept applies in Forex trading except that the floor and ceiling is defined by certain Forex price levels. An example of a price level could be the highest high of the last 10 days as well as the lowest level of the last 10 days. In this case the highest high of the last 10 days is the price level which forms our ceiling and the lowest low of the last 10 days is a price level which forms our floor. Some traders also refer to the ceiling as “resistance” and the floor as “support”.

Breakout trades are typically entered when the price of a currency pair moves above our ceiling price or below our floor price. When a currency pair’s price moves above our ceiling is said to “breakout to the upside”. When a currency pair’s price moves below are floor is said to “breakout to the downside”.

The theory behind breakout trading is that once a price breaks out in one direction or the other it has momentum to continue in the direction of the breakout.

Breakout Forex trading can be done in any timeframe be it monthly, weekly, daily, five-minute, etc. This means that short, intermediate, and long-term traders can take full advantage of breakout trading techniques to profit.

Many traders not only use the floor and ceiling concept to enter their trades, but to define their risk and exit their trades as well. The trader may buy a currency pair when the price breaks out above the ceiling price. The trader may then define their risk by placing a stop loss order to exit the by trade if and when the price travels downward and goes through the floor price. The converse is true of a sell trade. One of the nicest things about this particular trading technique is that you completely eliminate the guesswork regarding your risk. Your risk is basically defined by your entry breakout point in your exit breakout point. Using this technique you will always know ahead of time exactly what your trading risk will be and you may act accordingly.

Breakout Forex trading can be a highly effective strategy. Feel free to experiment with different time frames and price levels to see just how effective it can be for you.

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